What Happens to Employees When a Company Goes into Liquidation?

Losing a job this way is confronting, and the questions that follow – about unpaid wages, leave, redundancy, and superannuation – are ones employees rarely have time to prepare for. The short answer is this: liquidation ‌ends employment because the insolvency practitioner winds up the company’s operations.

Unpaid entitlements – wages, leave, and redundancy pay – become priority claims in ‌liquidation, meaning employees rank ahead of most other unsecured creditors under the Corporations Act 2001 (Cth).

Eligible employees may also access the Fair Entitlements Guarantee (FEG), a government safety net that can cover capped wages, leave, payment in lieu of notice, and redundancy pay. Superannuation sits outside FEG and follows a separate pathway through ‌liquidation and the Australian Taxation Office (ATO). This article explains each element in the order employees most need to understand it.

Does Liquidation End Your Employment?

Liquidation ends employment in most cases because the company stops operating under its directors. The registered insolvency practitioner takes control of the insolvent company. Several circumstances can affect when employment ends:

• Immediate termination: Employees receive notice when the practitioner ends their employment. The termination date establishes when future entitlements stop accruing.
• Short-term trading: A practitioner may continue operating the business to preserve its value. Retained staff work under terms agreed with the practitioner.
• Business sale: A buyer may offer new employment when it purchases the business as a going concern. Transfer rules may affect employee entitlements.
• Voluntary administration: An administrator may continue operating the business during voluntary administration. FEG becomes available after the company enters liquidation and the employee meets the eligibility requirements.
• Contractor arrangements: A genuine contractor‌ claims as an ordinary unsecured creditor. Employment records help resolve uncertain worker classifications.

What Happens to Unpaid Wages and Leave?

Employees become creditors when a company owes wages or employment benefits at the start of liquidation. Section 556 of the Corporations Act 2001 (Cth) gives employee debts priority over ordinary unsecured claims. The practitioner distributes available funds in the following order:

• Wages and super: Outstanding wage claims receive ‌first employed priority alongside qualifying super amounts.
• Leave entitlements: Annual leave and long service leave form the next employee class.
• Retrenchment payments: Qualifying redundancy pay follows leave claims in the priority order.

Each class receives payment before the following class. Partial funds produce a pro rata payment within the affected class. Lower classes receive payment from any remaining assets.

Several factors determine the final recovery:

• Available assets: The company’s remaining property controls how much employees receive through liquidation.
• Payment order: Liquidation costs and winding-up expenses rank before employee entitlements. Secured creditors ‌enforce their rights separately against secured assets.
• Excluded employee limits: Section 556 caps qualifying wage and super priority at $2,000 for non-priority days. Leave priority carries a $1,500 cap for the same group.
• Supporting records: Payslips and leave statements help verify each entitlement. Employment agreements can confirm wage rates and termination rights.

The Fair Entitlements Guarantee Explained

The Fair Entitlements Guarantee provides last-resort assistance after a company enters liquidation. The scheme applies when liquidation or bankruptcy leaves covered entitlements outstanding after other recovery avenues are exhausted. The Department of Employment and Workplace Relations administers FEG.

FEG covers five entitlement categories:

• Unpaid wages: FEG can cover up to 13 weeks of wages.
• Annual leave: The scheme can pay qualifying accrued annual leave.
• Long service leave: Coverage can include qualifying long service leave.
• Payment in lieu of notice: FEG can cover up to five weeks.
• Redundancy pay: Coverage extends to four weeks for each full year of service.

The employee’s governing employment terms establish the underlying amount. A Maximum Weekly Wage cap limits the weekly rate used for an advance. The department applies the indexed cap current during the assessment period.

FEG eligibility requires several conditions:

• Employment connection: Employment must end because of insolvency or within the specified period around the practitioner’s appointment.
• Residency status: The claimant must hold qualifying Australian citizenship or visa status when employment ends.
• Claim timing: An effective claim must reach the department within 12 months of the later relevant date.
• Employee classification: Contractors follow the ordinary creditor process, apart from a narrow exception for specified outworkers.

FEG excludes employees who qualify as excluded employees under Section 556 of the Corporations Act. This group includes employees who served as directors of the company at any time during the 12 months ending on the relevant date, spouses of those directors during the same period, and relatives of those directors as defined under the legislation. Section 11 of the FEG Act applies the same exclusion to liquidation and sets equivalent exclusions for bankruptcy.

Many employees still search for information about the General Employee Entitlements and Redundancy Scheme (GEERS). GEERS was the predecessor scheme, replaced by the Fair Entitlements Guarantee when the Fair Entitlements Guarantee Act 2012 commenced on 5 December 2012. GEERS is no longer a current scheme. Limited GEERS assistance may remain available to employees whose insolvency event predates that commencement, subject to applicable time limits, but for any insolvency event from 5 December 2012 onward, FEG is the relevant scheme.

The Superannuation Exception

Superannuation sits outside the five FEG entitlement categories. Employees facing a superannuation shortfall use a separate pathway. Three actions support the recovery process:

• Check contribution records: Compare payslips with the super fund’s transaction history. Record each contribution period and expected amount.
• Report the shortfall: Employees can report unpaid super to the ATO. The ATO can investigate and pursue the superannuation guarantee charge.
• Contact the practitioner: Ask for the super amount recorded in the company’s books. Comparing both records helps identify the precise shortfall.

Super still receives employee priority within a company liquidation. Section 556 groups qualifying contributions and the guarantee charge with outstanding wages. Recovery depends on assets available under the statutory payment order.

What Employees Should Do Now

Prompt action protects an employee’s ability to prove what the company owes. Each recovery route requires accurate dates and supporting employment records. The following steps support the creditor and FEG processes:

1. Confirm the insolvency appointment: Obtain the practitioner’s name and contact details. ASIC-published notices confirm when employers go into liquidation.
2. Collect employment records: Gather payslips and bank records. Add the employment agreement and termination correspondence.
3. Check the entitlement calculation: Compare the employer’s figures with accrued wage and leave records. Request a written breakdown from the practitioner.
4. Lodge a proof of debt: Request the prescribed form and attach supporting records. Proof-of-debt information establishes the employee’s claim.
5. Make a FEG claim promptly: Use the scheme’s online service or submit the department’s claim form. Provide residency evidence and accurate bank details.
6. Report the super shortfall: Submit the difference through the ATO reporting service. Keep the reference number with the insolvency records.
7. Monitor each claim: Check FEG Online Services for requests and status changes. Respond promptly when the department or practitioner requests documents.

How Long Does It Take to Be Paid?

Payment timing depends on the recovery pathway. A liquidation dividend follows asset collection and claim adjudication. A scheme payment follows the department’s eligibility assessment.

The two pathways have different timeframes:

• Liquidation distributions: Payments can take months or longer because the practitioner may need to sell property. Investigations or record issues can extend the process.
• FEG assessments: The department aims to process effective claims within 14 weeks. Timeframes vary based on document completeness and claim complexity.

Claimants can monitor FEG Online Services for status changes and correspondence. The portal accepts requested documents and updated personal details. The scheme’s hotline provides updates for offline applications.

An approved payment reaches the nominated bank account within two business days after the department completes its calculation. Tax and legally required deductions apply before transfer. The written decision explains the assessment and review rights.

When Legal Advice Helps

Employees often find that a legal review early in the process gives them a clearer picture of their entitlements and more time to gather the evidence needed to support their claim. Assistance may help in the following situations:

• Entitlement disputes: A lawyer can compare the contract with the applicable award or enterprise agreement.
• Excluded employee claims: Advice can explain how Section 556 and Section 11 affect directors or specified relatives.
• Rejected proofs of debt: A rejection notice sets a limited appeal period. Prompt advice supports timely procedural decisions.
• Business transfers: Legal guidance can clarify recognised service and redundancy pay after a sale.
• Record differences: A lawyer can organise the evidence and communicate a disputed calculation to the practitioner.

Get Advice About Employee Entitlements

Facing an employer’s liquidation is a stressful and, for many employees, sudden change in circumstances. Early advice can make a meaningful difference – clarifying priority rights, assessing FEG eligibility, and identifying the strongest recovery pathway for the specific situation.

Macmillan Lawyers and Advisors advises employees on priority claims and FEG eligibility. The firm can assess disputed calculations against employment records and governing terms.

The firm offers a free 30-minute consultation. Acting swiftly to protect entitlements is important. Call (07) 3518 8030 or email admin@macmillan.law for legal advice and guidance.

FAQs on What Happens to Employees When a Company Goes into Liquidation?

Does liquidation automatically end my employment?

In most cases, yes. When a company enters liquidation, the insolvency practitioner winds up its operations, and employment ‌ends. However, if the practitioner continues trading the business temporarily or sells it as a going concern, some employees may be retained or offered new employment by the buyer. The termination date matters because it determines when entitlements stop accruing.

What employee entitlements does the Fair Entitlements Guarantee cover?

FEG can cover up to 13 weeks of unpaid wages, accrued annual leave, qualifying long service leave, up to five weeks of payment in lieu of notice, and redundancy pay of up to four weeks per full year of service. Superannuation is not covered by FEG. Employees with an unpaid super shortfall must pursue that separately through the liquidation process and the ATO.

Who is excluded from making a FEG claim?

Employees who served as directors of the company at any time during the 12 months before the relevant date are excluded, as are their spouses and relatives as defined under the legislation. Independent contractors are also ‌excluded and must claim as ordinary unsecured creditors, except in limited circumstances involving specified outworkers.

What happens to unpaid superannuation when a company is liquidated?

Unpaid superannuation sits outside the FEG scheme but still receives priority status within the liquidation under Section 556 of the Corporations Act 2001 (Cth). Employees should compare payslips against their super fund’s contribution records, report any shortfall to the ATO, and contact the insolvency practitioner to verify the amount recorded in the company’s books. The ATO can investigate and pursue the superannuation guarantee charge.

How long does it take to receive payment after making a FEG claim?

The Department of Employment and Workplace Relations aims to process effective FEG claims within 14 weeks, though timeframes vary depending on document completeness and claim complexity. Once approved, payment reaches the nominated bank account within two business days of the department finalising its calculation. Liquidation distributions through the practitioner can take considerably longer, as the practitioner may need to sell assets and resolve all creditor claims before any dividend is paid.

Back to Top: What Happens to Employees When a Company Goes into Liquidation?